Over and above what we have seen in the past, 401(k) participants are increasing their contribution rates at a faster clip than ever before. In fact, 32% of participants increased their deferral rate over the past year, far surpassing the 21% who expressed the intention to do so in 2013. Moreover, one-quarter (26%) of those who did not make a change to their contribution levels within the last year indicate the intention to do so in the next 12 months. Not only does this tee up years of future growth in account value, but it represents an opportunity for providers as participants become more engaged in saving for retirement. These and other findings are included in DC Participant Planscape™, an annual Cogent Reports™ study by Market Strategies International.
The younger generations are driving this increase in contribution rates, and Cogent found that Gen X and Y participants have a stronger appetite for automatic plan features such as auto-increase and auto-rebalance, making them prime candidates for the combination of plan features that maximize savings potential.
¡°This spike in contribution rates is likely due to the improved economic climate in the US and growing account balances. The reason this increase is coming primarily from the younger generation may be because these cohorts are starting to understand the value of investing in their defined-contribution (DC) plans and the importance that their savings in these plans will have on their financial well-being in retirement,¡± explains Linda York, vice president of syndicated research at Market Strategies and industry expert. ¡°In an era where many providers are choosing to get out of the DC plan record-keeping business, those that maintain their presence may be sitting on a potential gold mine with their Gen X and Gen Y participants.¡±
The full report, first conducted in 2012, evaluates the competitive position of 20 leading plan providers on a variety of metrics, including overall satisfaction and likely consideration for additional products and services outside of the retirement plan. At an industry level, participant satisfaction with DC plans has improved dramatically over the past 12 months, presenting the strongest opportunity providers have had since the financial crash to capitalize on goodwill with their current customers. ¡°Among the top 20 providers, seven saw a significant lift in participant satisfaction, which, if maintained, could lead to lucrative cross-sell business in the future,¡± says York.
